Hedge funds take money from investors and make risky investments. They magnify the risk by borrowing short term funds. Some hedge funds borrow 20 times of their capital. This high leveraging is dangerous.
When their risky investments turn bad, they lost most of their investor's capital. They are not able to refinance the borrowings and had to repay them at short notice. They are required to liquidate their assets at depressed prices.
A few hedge funds had failed in this manner in recent months. This has caused the turmoil in the markets. It has become a financial crisis.
Lesson: Expect some regulatory controls over the use of leveraging by hedge funds in the future. In the meantime, expect the market to go through a lot of further turmoil, until the liquidity crisis is sorted out.
Saturday, March 15, 2008
Options to invest retirement savings
1. If you have to invest your retirement savings, the following options are available:
a) Retirement account of CPF - 4% plus 1%
b) Government bonds - 3%
c) Bank deposits - 1.5%
d) Life Annuity -5% plus bonus
e) Unit trust - 5% (average for long term)
f) Foreign currency - 4% with currency risk
2. If you have limited savings, say less than $500,000, you should invest as follows:
a) Keep the maximum allowed in CPF (say $150,000 at 65)
b) Use $200,000 to buy a life annuity at 65 to pay about $900 plus bonus each month
c) Invest the balance in government bonds or a unit trust
Use the monthly income from CPF and the annuity to meet your regular expenses. You can draw down on your other investments for emergency cash needs, e.g. large medical bills or education expenses.
If the monthly income is not sufficient for your expenses, you can do part-time work basis to earn a supplementary income.
If the monthly income is more than sufficent for your expenses, you can save and re-invest the balance.
Lesson: choose investments that have low expense charges, so that you can keep most of the yield (instead of giving it away to the intermediary or financial institutions).
a) Retirement account of CPF - 4% plus 1%
b) Government bonds - 3%
c) Bank deposits - 1.5%
d) Life Annuity -5% plus bonus
e) Unit trust - 5% (average for long term)
f) Foreign currency - 4% with currency risk
2. If you have limited savings, say less than $500,000, you should invest as follows:
a) Keep the maximum allowed in CPF (say $150,000 at 65)
b) Use $200,000 to buy a life annuity at 65 to pay about $900 plus bonus each month
c) Invest the balance in government bonds or a unit trust
Use the monthly income from CPF and the annuity to meet your regular expenses. You can draw down on your other investments for emergency cash needs, e.g. large medical bills or education expenses.
If the monthly income is not sufficient for your expenses, you can do part-time work basis to earn a supplementary income.
If the monthly income is more than sufficent for your expenses, you can save and re-invest the balance.
Lesson: choose investments that have low expense charges, so that you can keep most of the yield (instead of giving it away to the intermediary or financial institutions).
Investing for the long term
If you are investing your savings for your retirement, you should look for the following:
a) A diversified fund
b) Blue chip investments, i.e. non-speculative
c) Low cost, i.e. less than 1% per annum
d) Low upfront fee, less than 1%
If you invest in equities for the long term, you should be able to get an average yield (net of expenses) of 2% to 3% above Government bonds. This should give a net yield of about 5% to 6%.
It is important to invest in a low cost fund, so that you can keep most of the yield.
Investing in equity has its risk. You will get a high yield in some years, and a low or negative yield in other years. If you invest for many years, you will average out the good and bad years and get an average yield that is better than Government bonds.
Currently, you can achieve this goal by investing in the STI exchange traded fund managed by StateStreet. I will try to look for a unit trust that offers similar features.
a) A diversified fund
b) Blue chip investments, i.e. non-speculative
c) Low cost, i.e. less than 1% per annum
d) Low upfront fee, less than 1%
If you invest in equities for the long term, you should be able to get an average yield (net of expenses) of 2% to 3% above Government bonds. This should give a net yield of about 5% to 6%.
It is important to invest in a low cost fund, so that you can keep most of the yield.
Investing in equity has its risk. You will get a high yield in some years, and a low or negative yield in other years. If you invest for many years, you will average out the good and bad years and get an average yield that is better than Government bonds.
Currently, you can achieve this goal by investing in the STI exchange traded fund managed by StateStreet. I will try to look for a unit trust that offers similar features.
Benchmark premium rates for critical illness
A term insurance policy pays on death. A critical illness policy pays on the diagnosis of a critical illness or on death. The chance of making a claim on a critical illness policy is higher. A rule of thumb is that the premium payable for critical illness cover is 60% higher than for a death cover for a male. For a female, it is 140% higher.
Here are some specimen rates:
Here are some specimen rates:
Insure $300,000 level for 25 years
Age Male Female
Death CI Death CI
25 456 711 295 726
30 729 1161 431 1083
35 1211 1966 676 1586
40 1984 3212 1127 2304
Subscribe to:
Posts (Atom)